How Disruptive Startups Can Prepare for a Lawsuit

Internet television streaming service Aero isn’t the first startup to wage a high-profile lawsuit. Here’s what you can learn from the past.

The founder of Willa, which makes a line of skin care products aimed at preteenage girls, was surprised to receive a letter from Procter & Gamble demanding her company’s name be changed because it sounded too much like Wella, a P&G brand of hair care products. That’s because while founder Christy Prunier named the company after her own daughter, P&G claimed it was a trademark violation.

Rather than back down, Willa stood up to P&G and garnered so much media attention for her David versus Golliath story that the larger company backed down, opting to settle out of court. While the exact figures of the settlement remain in the dark, one only need visit Willa’s website to see they are still operating under the same name.

Machiavelli might as well have been talking about the modern entrepreneur when he said, “There is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success, than to take the lead in the introduction of a new order of things.”

Internet TV startup Aereo, has fought several legal battles in New York and is now suing CBS Corp. in Boston over its right to take free signals from the airwaves and send them over the web to paying subscribers.

Aereo has so far successfully argued that its practice of capturing signals using thousands of tiny antennas is comparable to individuals buying digital antennas for themselves, which is perfectly legal. So far, the federal courts have agreed.

Change does not come easy even in the best of circumstances, much less when the establishment leverages the law to keep innovations at bay. When Rollin King and attorney Herb Kelleher co-founded Southwest Airlines on the concept that air travel could be democratized with no-frills service and low prices, incumbent airlines including Brainiff, United and Continental responded with legal action that began a years-long legal battle to keep the discount flyer grounded.

Southwest fought back, winning legal battles all the way to the U.S. Supreme Court, and paving the way for the airline deregulation. Today, the company is one of the most successful and profitable airlines in the world.

In a 2008 interview, Kelleher said, “If Southwest had not been successful, you might not have the Ryanairs and the Easyjets and all of the low-fare carriers around the world, whether it’s Australia, Asia, Europe, Central and South America, you name it.”

Startups exist to introduce a “new order of things” and the establishment will almost always fight to preserve the status quo. These examples show that being prepared to fight back or even go on the offensive against a competitor that tries to compete with litigation, instead of innovation, can be the difference between consumers getting access to new and better solutions or not.

Uber, the smartphone app that provides easy access to taxis and car services, has battled regulators in cities around the world. Most recently, the service won legal skirmishes in New York City.

Entrepreneurs like these, who wage successful David versus Golliath legal campaigns, plan for potential legal issues and respond to them pragmatically. They often use the media to get their side of the story out. In fact, a competitor’s lawsuit can often bring more favorable attention to a startup than they could have afforded by advertising themselves. The key to success is a realistic understanding of your own legal position, separating emotion from facts, keeping good legal counsel and ensuring that you have the budget available for the fight. If so, the law really can be a powerful ally to the innovator.